since the whole objective of either compelling or encouraging people to save, and of providing tax relief as an incentive is to ensure people make adequate provision, it is reasonable to require that pensions savings is turned into regular pension income at some time.

On that point, as on many other points, I can agree with the conclusions of the Pensions Commission.

Mr. Hoban:
Given the consensus that the Economic Secretary mentioned and the way he warmly commended the conclusions of the Pensions Commission, does he also agree with the views of Lord Turner expressed in the debate on pensions in the House of Lords two weeks ago?

Ed Balls:
As I said, we are looking to forge a progressive consensus and I look forward to doing so. It should be possible to have a consensus that is progressive if we can involve most Members of the Housealthough perhaps not all. I quoted the Pensions Commission in that context as an example of one area where we can reach a consensus. On the particular opinions that Lord Turner set out in the House of Lords, I disagree with him and will set out why during the course of my speech.

26 Jun 2007 : Column 281

Mr. Soames rose

Ed Balls:
I am sorry to disturb the hon. Gentleman. I see that he has sprung back into life. I am happy to take his intervention.

Mr. Soames:
The hon. Gentleman does not have to apologise at all. He is boring us all sideways as it is. Just for the convenience of the House of Commons, would he have the good manners to define for all of us who sit on this side of the House what exactly a progressive consensus is?

Madam Deputy Speaker:
Order. I do not see that in any of the amendments. Perhaps the Minister will continue.

Ed Balls:
I will therefore hesitate to attempt to give the hon. Gentleman a definition either of progressive consensus or of good manners.

Mr. Dunne:
Will the Economic Secretary kindly enlighten us on another matter? When talking about the way in which the Government are approaching the issue, he referred to principles. What is his view of principle 6 from the Financial Services Authority, which is entitled Treating customers fairly? What about pensioners who die the day before they reach their 75th birthday? Their pension estate is effectively untaxed. Then there are those who, unfortunately for them, die shortly afterwards. The tax rate that applies varies between 0 and 82 per cent. How is that fair?

Ed Balls:
If I can make some progress, I will explain why the approach we are taking to ASPs is right and why it would be quite wrong to go down the route of the amendments. I would point out to the hon. Gentleman that the vast majority of pensioners have bought an annuity well before the age of 75 and would never be able to consider the option of an ASP in any case. It is only those with the largest pension pots who would be able to consider doing so. [ Interruption. ] From a sedentary position, the hon. Member for Tatton (Mr. Osborne) asked why we introduced ASPs. He knows very well that in the Committee on the Finance Bill in 2004, the then Financial Secretary said:

We have made this concession because people hold significant, principled, religious objections to the pooling of mortality risk.[ Official Report, Standing Committee A, 8 June 2004; c. 485.]

We thus introduced a way of allowing people with principled religious objections to save in a pension after the age of 75.

10.45 pm

As we have discussed many times in Committee, it is impossible in tax law to distinguish between people with different religious convictions. More importantly, in the year or so after we introduced ASPs, it became increasingly clear that people were using ASP vehicles as a way of substantially avoiding tax. We thus acted in last years Budget to tighten the laws on inheritance tax to prevent people from using ASPs as a vehicle for passing on tax advantage for inheritance. Even after those changes, such practices continued, so we acted in the pre-Budget report to protect properly the principle that pensioners tax relief was provided to produce 26 Jun 2007 : Column 282
income in retirement, rather than to give a tax advantage to inheritance. That is what we are doing through the ASP changes in the Bill.

Our application of the principles has been consistent. Furthermore, we have consistently demonstrated that when people are trying to get round the principles by giving a tax advantage to inheritance, we are willing to act decisively, as we did in the pre-Budget report. We have made it clear that an annuity is the best way for the vast majority of individuals to secure an income in retirement. An ASP allows those with religious objections to the pooled mortality risk in annuities to have a guaranteed lifetime income without an annuity and without a tax advantage to inheritance. While the ASP is not a mainstream productit is blind to religionthe Bill allows a small minority, if they are well advised, to continue to use ASPs to draw an income in retirement without buying an annuity, but only in a way that is consistent with our principle that pension tax relief should not be used to give a tax favour to inheritance.

The Conservative amendments would replace the proposed minimum income for ASPs of 55 per cent. with an amount that would substantially jeopardise our objectives for ASPs. As I said, the purpose of tax relief is to encourage and support pension saving to produce an income in retirement. The danger of the official Oppositions proposals arises from the specific income from pension savings that they specify must be delivered. Under those proposals, a person with an ASP fund worth £1 million would receive an income that was 10 times lower than that allowed under the Bill. Someone with a large pension pot would have to take a small income and would thus have a large tax advantage pot to pass on to their successors. On the other hand, a person with a much smaller pension fund£50,000, for examplewould draw an income that could well lead the fund to run out much earlier than would be sensible. The proposals would put the most vulnerable in a dangerous and disadvantaged position, while they would give the richest a substantial tax advantage to inheritance.

Let me cite a tax adviser who responded to our announcement in the pre-Budget report. Mr. Tom McPhail, the head of research at financial advisers Hargreaves Lansdown, told the Financial Times on 22 March that the changes in the Bill mean that the

door has effectively been closed on using pensions for inheritance tax planning purposes.

The problem with the Opposition amendments is that they would reopen that door and allow some of the £16 billion of tax relief to be used to the advantage of inheritance tax planning. There might be some Conservative Members who would think that that would be a step forward, but I think it would represent a substantial step away from the progressive consensus that Labour Members wish to reach. I hope that the hon. Member for Fareham will not attempt to advantage inheritance tax planning, so I urge him to withdraw the amendment, rather than trying to waste taxpayers money through breaking our principles and encouraging inheritance tax planning.

Mr. Soames:
On a point of order, Madam Deputy Speaker. You refused to allow the Economic Secretary to define a progressive consensus, but the flim-flam 26 Jun 2007 : Column 283
argument that he has recently constructed to oppose the amendment is wholly based on a progressive consensus, and no one on this side of the House has the remotest idea what he is talking about.

Madam Deputy Speaker:
That is not a point of order for me. However, following this debate there will be a debate on Third Reading, and perhaps the hon. Gentleman will wish to catch my eye.

Mr. Hoban:
The reality is that in the Finance Act 2004 the Government let the genii out of the bottle. They introduced changes that led people to think that ASPs were an appropriate form of tax planning and of securing an income in their retirement. The Government legislated for that. Only last year, in the Finance Act 2006, the Government introduced changes to tighten up the rules, and this year they have come back and tried to restrict ASPs to make them less flexible and less attractive to people as a means of providing flexibility in retirement.

The problem with the Governments approach is that they are out of step with the desire of most people in this country to have greater control over their pension funds. They are out of step with the people of this country who want choice [ Interruption. ]

Madam Deputy Speaker:
Order. The House must come to order.

Mr. Hoban:
The Government are out of step with people who want to have choice in their lives, who do not want to be patronised or directed by the Government as to how they use their pension funds in retirement. On that basis, I urge my colleagues to vote in favour of amendment No. 44.